Gyrostat November Outlook: The Rising Cost of Doing Nothing

Through the second half of 2025, markets have delivered a curious mix of surface tranquillity and instability beneath. August brought low index volatility alongside rising single-stock dispersion. September reinforced this divergence as concentration risk increased. October saw option markets quietly reprice protection even as headline indices stayed calm.

Now, November has pushed these undercurrents into clearer focus. Risk pricing has firmed, stock price movements have become more erratic, and a modest downside bias has emerged. For most accumulation-stage investors, these developments may feel remote. But for retirees where withdrawals amplify drawdowns and longevity risk compounds, the shift is both meaningful and immediate.

The core message is simple: doing nothing is no longer a neutral choice. It is itself a risk position.

And for lower-risk retirees, it is increasingly the wrong one.

The deeper issue is behavioural. Advisers and investors are often anchored to the familiar logic of the accumulation phase: stay invested, average in, stay patient. But once withdrawals begin, the mathematics change. Losses early in retirement can permanently impair outcomes, even if markets eventually recover. Dollar-cost averaging becomes impossible, and sequence-of-returns risk becomes structural.

This November, rising protection costs and elevated volatility serve as a clear reminder: retirees cannot afford accumulation-era thinking in a decumulation-era world.

The Real Issue Isn't The gyrostat-capital-management-blending-managers-from-style-diversification-to-scenario-diversification-7943?e=1&search=gyrostat" target="_blank">market - It's The Choices Retirees Are Given

Most retirees, whether explicitly or implicitly, face four choices:

1. Do Nothing - Stay in Accumulation Mode (The Default for Many)

This is the path of least resistance: remain largely in equities, have little or no protection, and assume long-term returns will compensate for short-term losses.

For retirees, this is the most dangerous option.

Sequence-of-returns risk means that even modest early drawdowns can become permanent when withdrawals are occurring. Once capital leaves the portfolio during a downturn, it cannot participate in the rebound.

Doing nothing feels safe, but it is a highly exposed risk position for retirees.

2. Build your Own Protection (DIY Hedging)

Retirees and most advisers are not derivatives desks. Managing puts, selecting strikes, rolling protection, and deciding whether to monetise hedges or extend duration requires a specialised, continuous decision-making framework. Without that system, DIY protection often delivers an inconsistent outcome or erodes its own value.

3. Add Absolute Return Income Equity Fund for Scenario Diversification (But Keep The Same Core Portfolio)

This option changes the structure of gyrostat-capital-management-blending-managers-from-style-diversification-to-scenario-diversification-7943?e=1&search=gyrostat" target="_blank">market exposure rather than adding overlays or timing decisions.

Risk-managed absolute return equity funds - such as gyrostat Class A and Class B - diversify by scenario, not by style or sector. They maintain equity-linked return potential but with defined risk bounds, controlled drawdowns, and an ability to benefit from periods of elevated volatility.

For risk-averse investors, replace a portion of passive long-only equity with scenario-diversifying strategies to blend managers and approaches for a more stable outcome.

gyrostat Class A - Risk-Managed Equity (flagship)

1. No quarterly loss >3% over 14 years (3-yr max quarterly drawdown: -1.26%, source: FE Analytics)
2. Increases in value during major gyrostat-capital-management-blending-managers-from-style-diversification-to-scenario-diversification-7943?e=1&search=gyrostat" target="_blank">market falls, by design
3. Absolute-return profile that benefits from elevated volatility

This is not about gyrostat-capital-management-blending-managers-from-style-diversification-to-scenario-diversification-7943?e=1&search=gyrostat" target="_blank">market timing - it is about altering the resilience of the underlying return engine.

We elaborate on this framework in Risk-Managed Investing: A Structured Guide from Accumulation to Retirement. https://www.gyrostat.com.au/news/risk-managed-investing/

4. Appoint a Manager Who can Deliver Dynamic, Low-Cost Structural Protection

For retirees who prefer to retain their existing portfolio structure, the next option provides protection without selling assets. Downside protection overlay is managed by a specialist firm such as gyrostat.

The overlay is a rules-based, options-based protection strategy designed to reduce the impact of major gyrostat-capital-management-blending-managers-from-style-diversification-to-scenario-diversification-7943?e=1&search=gyrostat" target="_blank">market declines while still allowing the portfolio to participate in gyrostat-capital-management-blending-managers-from-style-diversification-to-scenario-diversification-7943?e=1&search=gyrostat" target="_blank">market growth.

This is not gyrostat-capital-management-blending-managers-from-style-diversification-to-scenario-diversification-7943?e=1&search=gyrostat" target="_blank">market timing - it is risk engineering.

It allows retirees to remain invested without being exposed to the full force of downside events.

Current gyrostat-capital-management-blending-managers-from-style-diversification-to-scenario-diversification-7943?e=1&search=gyrostat" target="_blank">market Backdrop

With stock price movements becoming more erratic, the cost of protection has begun to rise. Volatility indices, the gyrostat-capital-management-blending-managers-from-style-diversification-to-scenario-diversification-7943?e=1&search=gyrostat" target="_blank">market's primary barometer for pricing uncertainty, now reflect a shift from the unusually calm conditions of recent months to a more cautious stance. In simple terms, when volatility measures climb, it signals that markets are assigning a higher premium to insurance against downside risk. It is the financial system's way of expressing that uncertainty is increasing.

VIX - S&P 500 Implied Volatility

Source: Bloomberg / Google Finance (data as at 21 November 2025)

Translating Volatility into Portfolio Protection Costs

The VIX index reflects the gyrostat-capital-management-blending-managers-from-style-diversification-to-scenario-diversification-7943?e=1&search=gyrostat" target="_blank">market's expectation of volatility, and by extension, the cost of protection. When volatility is subdued, protection is inexpensive; when volatility surges, the cost of cover rises sharply and availability narrows.

One way to translate this into practical terms is to express protection as a percentage of the portfolio value being insured. The cost depends on the chosen duration and the level of loss the investor is willing to tolerate before compensation begins.

S&P 500 Protection Pricing: Duration vs Excess - at 21 November

Source: gyrostat analysis of S&P 500 option pricing (as at 21 November 2025)

For example, at 21^st November 2025 protecting a $1 million S&P 500 portfolio until 17^th September 2026 with a 10% hard floor at the 5894 level would cost approximately 2.1% ($21,000). 

In contrast, at the time of publication last month on 17^th October the 10% protection level was higher at the 5969 and less expensive at 2.0% ($20,000).

Outlook - A Wake-Up Call to Reassess Approach

Looking ahead, the rise in volatility and protection costs should not be seen as a signal to retreat, but rather as a strategic opportunity for retirees to reassess their approach.

Higher volatility increases the importance of having a defined protection process.  Rising hedging costs highlight the need to secure protection early.  And the re-emergence of downside risk should serve as a wake-up call from the complacency of recent years.

For retirees and conservative investors, financial peace of mind is not a gyrostat-capital-management-blending-managers-from-style-diversification-to-scenario-diversification-7943?e=1&search=gyrostat" target="_blank">market outcome - it is an engineering outcome.

gyrostat Capital Management prepared this document and it is intended only for Australian residents who are wholesale clients (as defined in the Corporations Act 2001). To the extent any part may be perceived as financial product advice, it is general advice only and has been prepared without taking into account of the reader's investment objectives, financial situation or needs. Anyone reading this report must obtain and rely upon their own independent advice and inquiries. Investors should consider the Product Disclosure Statement (PDS) relevant to the Fund before making any decision to acquire, continue to hold or dispose of units in the Fund. You should also consult a licensed financial adviser before making an investment decision in relation to the Fund. One Managed Investment Funds Limited ACN 117 400 987 AFSL 297042, is the responsible entity of the Fund but did not prepare the information contained in this document. While OMIFL has no reason to believe that the information is inaccurate, the truth or accuracy of the information in this document cannot be warranted or guaranteed.